Gas Attack

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Consider the dilemma governors and legislators across the country were facing as they began their 2013 legislative sessions: Mounting needs to repair and upgrade their states’ transportation infrastructure, but bad news all around when it came to finding the money to pay for it all.

All 50 states rely, at least in part, on taxes on gasoline and diesel fuel — the “gas tax” — to pay for the upkeep of roads and bridges and build new ones. Some states also contribute a share to public transportation. Time was, it was the most dependable source around: As more people drove more miles, more money came in. But now, says James Corless, director of the coalition Transportation for America. “Cars are getting more efficient, and people are actually driving less per person.”

With five years of recession added to the mix, most states by 2012 found themselves bobbing in red ink where transportation was concerned. But in the summer of 2012 the news got worse: The federal government, which pays for up to 80 percent of the most expensive road projects and half or more of transit construction, would not be coming to the rescue.

Federal gas tax revenues are shrinking, too. Rather than raise the federal gas tax — which has remained at 18.4 cents per gallon since 1993 — some in Congress proposed to cut the transportation program by a third as a result. Through a bit of budgetary sleight-of-hand, Congress ultimately found money in the general fund to plug the hole in the transportation trust fund, but only for two years and only at 2009 levels. Meanwhile, the population continues to grow and infrastructure continues to age — to the point that one in nine bridges is rated “structurally deficient” — and the purchasing power of those dollars declines as construction costs rise (55 percent since 1993, according to the Institute on Taxation and Economic Policy). Not only that, but at current spending levels the trust fund will be depleted by fiscal 2015 without further action to raise revenues.

“All these things have conspired to put less revenue into states’ hands,” Corless said, “so they are having to get creative.” As a result, 2013 saw an unprecedented 19 states make moves designed to raise more money for transportation. With the 2012 elections behind them, governors and legislative leaders of both parties defied conventional political wisdom to propose to raise more money for transportation by doing what could only be called raising taxes, whatever guise they took.

However, with the gas tax increasingly seen as unpopular, very few of these proposals came in the form of a straight increase in the per-gallon tax. An exception was Wyoming, where Republican Gov. Matt Mead proposed and won a measure raising the gas tax 10 cents, 14 to 24 cents per gallon to raise an additional $70 million a year for transportation.

Virginia made one of the most radical moves when it eliminated its per-gallon gas tax, replacing it with a 3.5 percent wholesale tax on gasoline and a 6 percent tax on diesel fuel. This converted the tax from a per-gallon tax to a per-dollar tax — meaning from this point forward it will rise along with inflation. At the same time, in order to raise the total $860 million per year for transportation, the legislature also increased the sales tax from 5 percent to 5.3 percent on nonfood merchandise and allocated some state general fund revenues. The package also imposed new fees for electric, alternative-fuel and hybrid vehicles. The legislature also gave Northern Virginia and Hampton Roads the latitude to impose their own sales tax increments devoted to transportation.

“Virginia’s economy depends upon a modern transportation system,” Gov. Robert F. McDonnell said in a statement. McDonnell got the ball rolling in January by proposing the first tax hike for transportation in 26 years. “Without good roads, rail, transit, and bridges, we cannot attract the new businesses that will create the good-paying jobs our citizens need and deserve. A continued failure to dramatically improve transportation would leave the Commonwealth less competitive economically [and] shrink our tax base.”

Virginia’s was a move born of necessity, Transportation Secretary Sean Connaughton explained at a Congressional hearing on transportation funding in September. “We were able to show to our legislature we were not going to have the money even to do our federal match by 2015,” he said. Ultimately, by promising reforms and a package of investments with broad support, “we were able to move from gas tax that is shrinking to a revenue source that is growing, the sales tax.”

Other states went the route of adding or increasing a sales tax on gasoline, rather than raising the per-gallon fee. Sales taxes on fuel are growing in popularity as a way to match inflation. (Indeed, Sen. Barbara Boxer, chair of the transportation bill-writing Environment and Public Works Committee, recently suggested the federal gas tax could be shifted to a sales tax at the wholesale level.)

In Vermont, Democratic Gov. Peter Shumlin initially proposed a straight gas tax increase to make up a $36-million shortfall in the state’s transportation budget, after a special commission found the state’s program on a crash course with insolvency. The ultimate compromise with the legislature actually slightly reduced the per-gallon tax, while imposing a new 2 percent levy on gas at the wholesale level.

Inspired by neighboring Virginia, Maryland Gov. Martin O’Malley proposed — and the General Assembly passed — a transportation revenue bill that phases in a sales tax on gas of up to 5 percent and ties the existing per-gallon gas tax to inflation. The additional $4.4 billion expected over six years goes to a unified state transportation trust fund that pays for all modes. The increase in the 23.5 cents-per-gallon tax is the first in over two decades, and could add 20 cents per gallon by the time it is fully implemented in 2016.

In Massachusetts, the threat of a major increase in the Boston-area transit fares to cover the system’s massive debt helped spur a revenue package that will raise $500 million this fiscal year and then about $805 million a year by 2018. The new law increased the gas tax by 3 cents, to 26.5 cents per gallon and added $1 per pack to the cigarette tax. It also includes a provision to increase the gas tax with inflation starting January 1, 2015. The new taxes also will help pay for regional bus services, fund state Department of Transportation personnel costs, and finance some modest transportation projects.

For all the states that passed transportation revenue laws, there were at least twice as many that saw such efforts fail. In Michigan, Republican Gov. Rick Snyder’s proposal to replace a tax at the pump with a sales tax at the wholesale level spawned a flurry of counterproposals, none of which succeeded. “Now the most viable idea is probably a libertarian’s ‘pot for potholes’ proposal, using money from legalized marijuana,” joked Tim Fischer, a legislative liaison for the Michigan Environmental Council. Washington’s divided legislature fought somewhat bitterly over a transportation revenue package that ultimately stalled out, with talk of reviving it in a special session in late 2013.

Oregon, meanwhile, is looking to a future of ever-more efficient vehicles and ever-declining gas tax revenue and trying something altogether different: a fee based on how many miles you drive versus how much gas you buy. One of several states that have experimented with technologies to track and collect the per-mile taxes, Oregon this year became the first to adopt a vehicle-miles fee as an official revenue-collection option. The new legislation calls for 5,000 volunteer drivers to install devices that track and collect the per-mile fee, and also tell the state how much gasoline tax to rebate to those drivers. State transportation officials hope the new program will convince others that it can work, and without fulfilling fears that the devices will impede on drivers’ privacy.

Proponents say vehicle-miles taxes are an improvement because they tie what you pay directly to impact on the roads, but detractors say they reduce the benefits of switching to high-efficiency vehicles. Either way, whether the new approach actually makes up for declining gas tax revenue is an open question: It turns out the miles driven per person is actually dropping, too — and ironically, Oregon is leading the way in that trend. Oregon’s yearly miles-driven-per-person has dropped by 18 percent since the peak year of 1999, the largest of any state (Washington, D.C., dropped by 22 percent).

The reality today, though, is that “road user fees” only cover half of the bill for building and maintaining our road network, and that ratio is dropping every year. At the local level, nearly all road and transit costs are paid by sales, property or other non-fuel taxes. Increasingly, special local levies and ballot measures are making up for uncertain state and federal resources. While no one expects gas taxes to disappear any time soon, their days as being the primary source of transportation revenue may be numbered.

“A little disruption is not necessarily a bad thing. It’s never good to be too reliant on one source of revenue,” Corless said. “The critical point is that transportation infrastructure is a fundamental role of government, so we have to be willing to pay for it one way or another.”

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